Is it worth it to continuously rollover HSA to another provider

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blackfish
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Is it worth it to continuously rollover HSA to another provider

Post by blackfish »

I reading another thread a while back and one of the responses has had me thinking since. Searched and was not able to find the old thread.

The MegaCorp that I work for provides a high deductible health plan that qualifies my family for an HSA. The HSA provider we must use is Optum Bank.

Current Situation
-Employer deposits an annual $1800 lump sum in the HSA every January.

-I have the family plan so I contribute the other $5400 through pre-tax payroll deductions

-I do not have the option to direct any of these contributions to another provider.

-This is our first year with the HSA so our balance is small at this point.

Optum has pro's and con's. I am trying to decide if it is worth it to exert the effort to do an annual rollover to Fidelity

Optum Pros:
-Expense Journal and Receipt Bank where I can save receipts and document expenses without withdrawing the money. This is a pretty big perk that I do not know if Fidelity provides.

-Good low expense index funds including VITSX (Vanguard Total Stock Market Index Fund Institutional Shares) where 100% of my balance is (works with my overall AA)

-Do not have to hassle with a rollover and the subsequent tax filings and potential for screw ups.

Optum Cons:
-Forces me to keep $2000 in a Optum Savings Account returning 0.01% APY
-Charges $120 annually to invest.

My Options: (as I see them)
1. Stay with Optum, enjoy the expense journal and receipt bank and deal with the low APY and $120 annual fees

2. Stop my paycheck contributions to Optum and direct them Post Tax to Fidelity and then deduct them on my tax returns (I believe this will cause me to pay FICA taxes then which is most certainly not ideal) and do a one time annual rollover of the $1800 lump sum to fidelity through this means (to avoid a $20 rollover fee)

https://thefinancebuff.com/how-to-rollo ... r-fee.html

3. Continue to contribute pre-tax to max out my HSA to Optum to avoid FICA taxes and do a one time rollover of whatever the balance is annually through the same method above.

My Questions:

1. Are those the options, or is anyone familiar with another option since that finance buff article was written

2. Option 3 is likely the most financially beneficial - but is it worth the effort? Looking for opinions or anyone who has done this in the past or is currently doing it that can weigh in.

3. Am I correct in my FICA tax assumption?


Thanks for your time and consideration!
Soon2BXProgrammer
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Joined: Mon Nov 24, 2014 10:30 pm

Re: Is it worth it to continuously rollover HSA to another provider

Post by Soon2BXProgrammer »

TLDR.

I rollover my funds yearly from my employer HSA to a low cost HSA providers (livelyhsa)
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
IowaFarmWife
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Re: Is it worth it to continuously rollover HSA to another provider

Post by IowaFarmWife »

Blackfish, i am in the same predicament, but my employer uses a different company. I am not super thrilled with Kable, and I would love to switch to Fidelity, but I'm just unsure as to how this works and I am concerned this may be a bigger PITA than I want to deal with right now. I'm curious to see more replies.
"A nickel ain't worth a dime anymore." Yogi Berra's financial wisdom.
Impatience
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Re: Is it worth it to continuously rollover HSA to another provider

Post by Impatience »

Option 3. It’s what I do and many, many others here do. Fidelity is excellent when it comes to choices and low/no fees. Keep making payroll contributions to avoid paying FICA on them and then roll over into Fidelity once every 365 days (it’s based on days for some reason if you do it yourself).

It’s super easy to do. I ask my provider to ACH me the full balance of my HSA for the past year and then ACH it right back to Fidelity the same day it hits my bank account. Almost effortless.
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blackfish
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Re: Is it worth it to continuously rollover HSA to another provider

Post by blackfish »

Impatience wrote: Fri Apr 16, 2021 8:20 am Option 3. It’s what I do and many, many others here do. Fidelity is excellent when it comes to choices and low/no fees. Keep making payroll contributions to avoid paying FICA on them and then roll over into Fidelity once every 365 days (it’s based on days for some reason if you do it yourself).

It’s super easy to do. I ask my provider to ACH me the full balance of my HSA for the past year and then ACH it right back to Fidelity the same day it hits my bank account. Almost effortless.
Thanks!

Excuse my ignorance but can you spell out ACH?

Do you invest your contributions in your employer provided HSA for the year then sell and transfer when your date comes up?
cas
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Re: Is it worth it to continuously rollover HSA to another provider

Post by cas »

blackfish wrote: Fri Apr 16, 2021 7:45 am Optum Pros:
-Expense Journal and Receipt Bank where I can save receipts and document expenses without withdrawing the money. This is a pretty big perk that I do not know if Fidelity provides.
I've never had an Optum account, so I don't know exactly how this feature is set up. Maybe it is really easy to download to your own computer so that you have a backup record and can get around some of the downsides listed below.

But, in general, I'm personally suspicious of this sort of perk. There are a lot of ways you can get left up the creek without a paddle:
  • It is useful only until the HSA provider, for whatever reason, suddenly decides to discontinue it.
  • It is useful only until your employer, for whatever reason, decides to switch HSA providers. These sorts of records tend not to transition to the new provider.
  • It is useful only until you, for whatever reason, decide you would rather be rid of Optum. After that decision, it is a handcuff rather than a perk.
  • It is useful only so long as whoever needs to access the records can access your online account. This might not necessarily be a given in the event of your demise or mental incapacity.
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blackfish
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Re: Is it worth it to continuously rollover HSA to another provider

Post by blackfish »

cas wrote: Fri Apr 16, 2021 8:33 am
blackfish wrote: Fri Apr 16, 2021 7:45 am Optum Pros:
-Expense Journal and Receipt Bank where I can save receipts and document expenses without withdrawing the money. This is a pretty big perk that I do not know if Fidelity provides.
I've never had an Optum account, so I don't know exactly how this feature is set up. Maybe it is really easy to download to your own computer so that you have a backup record and can get around some of the downsides listed below.

But, in general, I'm personally suspicious of this sort of perk. There are a lot of ways you can get left up the creek without a paddle:
  • It is useful only until the HSA provider, for whatever reason, suddenly decides to discontinue it.
  • It is useful only until your employer, for whatever reason, decides to switch HSA providers. These sorts of records tend not to transition to the new provider.
  • It is useful only until you, for whatever reason, decide you would rather be rid of Optum. After that decision, it is a handcuff rather than a perk.
  • It is useful only so long as whoever needs to access the records can access your online account. This might not necessarily be a given in the event of your demise or mental incapacity.
These are really good points. I had considered what would happen if it all got deleted but had not come up with a good countermeasure yet, had not considered all of the other scenarios. Thanks.
an_asker
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Joined: Thu Jun 27, 2013 2:15 pm

Re: Is it worth it to continuously rollover HSA to another provider

Post by an_asker »

blackfish wrote: Fri Apr 16, 2021 7:45 am I reading another thread a while back and one of the responses has had me thinking since. Searched and was not able to find the old thread.

The MegaCorp that I work for provides a high deductible health plan that qualifies my family for an HSA. The HSA provider we must use is Optum Bank.

Current Situation
-Employer deposits an annual $1800 lump sum in the HSA every January.

-I have the family plan so I contribute the other $5400 through pre-tax payroll deductions

-I do not have the option to direct any of these contributions to another provider.

-This is our first year with the HSA so our balance is small at this point.

Optum has pro's and con's. I am trying to decide if it is worth it to exert the effort to do an annual rollover to Fidelity

Optum Pros:
-Expense Journal and Receipt Bank where I can save receipts and document expenses without withdrawing the money. This is a pretty big perk that I do not know if Fidelity provides.

-Good low expense index funds including VITSX (Vanguard Total Stock Market Index Fund Institutional Shares) where 100% of my balance is (works with my overall AA)

-Do not have to hassle with a rollover and the subsequent tax filings and potential for screw ups.

Optum Cons:
-Forces me to keep $2000 in a Optum Savings Account returning 0.01% APY
-Charges $120 annually to invest.

My Options: (as I see them)
1. Stay with Optum, enjoy the expense journal and receipt bank and deal with the low APY and $120 annual fees

2. Stop my paycheck contributions to Optum and direct them Post Tax to Fidelity and then deduct them on my tax returns (I believe this will cause me to pay FICA taxes then which is most certainly not ideal) and do a one time annual rollover of the $1800 lump sum to fidelity through this means (to avoid a $20 rollover fee)

https://thefinancebuff.com/how-to-rollo ... r-fee.html

3. Continue to contribute pre-tax to max out my HSA to Optum to avoid FICA taxes and do a one time rollover of whatever the balance is annually through the same method above.

My Questions:

1. Are those the options, or is anyone familiar with another option since that finance buff article was written

2. Option 3 is likely the most financially beneficial - but is it worth the effort? Looking for opinions or anyone who has done this in the past or is currently doing it that can weigh in.

3. Am I correct in my FICA tax assumption?


Thanks for your time and consideration!
I am unsure what the annual rollover gets you!

Unless my understanding of your situation is flawed:

- you are gonna pay $120 per year regardless of whether you have $1 or $1 million.

- If you choose to close the account and contribute outside, you are on the hook for the FICA (which I would guess as being close to the $120 per year or in the same ball park - I have not done detailed analysis).

- you have access to good low expense ratio index funds within Optum.

If I am correct on these points, I would say just keep calm and carry on. Leave everything in Optum as is, and ensure that you are DCAing to you set asset allocation every paycheck.
Impatience
Posts: 724
Joined: Thu Jul 23, 2020 3:15 pm

Re: Is it worth it to continuously rollover HSA to another provider

Post by Impatience »

blackfish wrote: Fri Apr 16, 2021 8:24 am
Impatience wrote: Fri Apr 16, 2021 8:20 am Option 3. It’s what I do and many, many others here do. Fidelity is excellent when it comes to choices and low/no fees. Keep making payroll contributions to avoid paying FICA on them and then roll over into Fidelity once every 365 days (it’s based on days for some reason if you do it yourself).

It’s super easy to do. I ask my provider to ACH me the full balance of my HSA for the past year and then ACH it right back to Fidelity the same day it hits my bank account. Almost effortless.
Thanks!

Excuse my ignorance but can you spell out ACH?

Do you invest your contributions in your employer provided HSA for the year then sell and transfer when your date comes up?
ACH is an electronic funds transfer (automated clearing house? Something like that). If you’re moving money online without using a wire it’s probably an ACH.

My employer plan requires at least $1k kept in their default savings account and another $1k in the investing account in order to invest and then they charge something like $20 per quarter for the privilege, so I don’t bother with that option as I wouldn’t even be at the threshold until almost 2/3 of the way through the year. It just sits there until it finds its way to Fidelity where it’s invested along the same lines as the rest of my portfolio.
Impatience
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Joined: Thu Jul 23, 2020 3:15 pm

Re: Is it worth it to continuously rollover HSA to another provider

Post by Impatience »

an_asker wrote: Fri Apr 16, 2021 8:39 am I am unsure what the annual rollover gets you!

Unless my understanding of your situation is flawed:

- you are gonna pay $120 per year regardless of whether you have $1 or $1 million.

- If you choose to close the account and contribute outside, you are on the hook for the FICA (which I would guess as being close to the $120 per year or in the same ball park - I have not done detailed analysis).

- you have access to good low expense ratio index funds within Optum.

If I am correct on these points, I would say just keep calm and carry on. Leave everything in Optum as is, and ensure that you are DCAing to you set asset allocation every paycheck.
I believe the $120 is only charged if they choose to open an investing account within the HSA. The default savings account style plan does not charge a fee. At least that’s how it commonly works with these plans.
MrJedi
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Re: Is it worth it to continuously rollover HSA to another provider

Post by MrJedi »

I would just do option 1.

First off, the dead $2000 cash fund. It's annoying, but you can just consider it part of the rest of your cash portfolio. I.e. reduce emergency fund or fixed income allocation by $2000. Even if your fixed income was yielding 3%, that's only $60 a year in lost interest. 3% is quite optimistic in today's rates too.

$120 to invest. I would rather pay the $120 to have my funds always invested immediately rather than have it sit as dead cash for a year before rolling over to a free investment HSA. Maybe you could do a lump sum payroll deduction around the same time that you get your employer lump sum, and then immediately do the rollover then. That way you get your HSA invested immediately and you dodge the fee. But that seems like a pain to coordinate every year vs set it and forget it. I don't think that $120 is worth the time, stress, and hassle with making sure you do it right every year.
an_asker
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Joined: Thu Jun 27, 2013 2:15 pm

Re: Is it worth it to continuously rollover HSA to another provider

Post by an_asker »

Impatience wrote: Fri Apr 16, 2021 1:30 pm
an_asker wrote: Fri Apr 16, 2021 8:39 am I am unsure what the annual rollover gets you!

Unless my understanding of your situation is flawed:

- you are gonna pay $120 per year regardless of whether you have $1 or $1 million.

- If you choose to close the account and contribute outside, you are on the hook for the FICA (which I would guess as being close to the $120 per year or in the same ball park - I have not done detailed analysis).

- you have access to good low expense ratio index funds within Optum.

If I am correct on these points, I would say just keep calm and carry on. Leave everything in Optum as is, and ensure that you are DCAing to you set asset allocation every paycheck.
I believe the $120 is only charged if they choose to open an investing account within the HSA. The default savings account style plan does not charge a fee. At least that’s how it commonly works with these plans.
Oh got it! DW has a similar plan through her workplace. We've just gone with their in-built option. I've got enough corks in the water plus I'm not as disciplined as most Bogleheads are - don't want to add to the complexity :-)
TropikThunder
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Re: Is it worth it to continuously rollover HSA to another provider

Post by TropikThunder »

Some perspective:
blackfish wrote: Fri Apr 16, 2021 7:45 am Optum Cons:
-Forces me to keep $2000 in a Optum Savings Account returning 0.01% APY
-Charges $120 annually to invest.
- CAGR for VITSX since Aug 1997 was 8.62%. Past performance yada yada, but the $2,000 hostage account would have cost you on average $172/year by not being investable, even more some years ($616 in 2019, $420 in 2020 for example). And if you needed to spend some of that $2,000, you would need to refill it before making additional investments. How much time doing a roll-over would that be worth to you?

- VITSX is a great fund with a tiny expense ratio of only 0.03%. But the $120 annual investing fee is a de-facto additional expense ratio on top of the fund cost. If you have $10,000 in VITSX, the fee is +1.20% (that's 120 bp). If you have $100,000, the fee is still 12 bp, or FOUR TIMES what the underlying fund ER is. You'd have to have over $400,000 in VITSX before the Optum fee was on the order of magnitude of the Vanguard fee (which you'd still be paying too). Yikes.

blackfish wrote: Fri Apr 16, 2021 7:45 am My Options: (as I see them)
Stop my paycheck contributions to Optum and direct them Post Tax to Fidelity and then deduct them on my tax returns (I believe this will cause me to pay FICA taxes then which is most certainly not ideal) and do a one time annual rollover of the $1800 lump sum to fidelity
through this means (to avoid a $20 rollover fee)

Am I correct in my FICA tax assumption?
You're correct. If you make HSA contributions by payroll deduction they are exempt from income taxes and FICA, while making the contributions after-tax and then claiming the deduction only shields them from income taxes. But for most people, higher FICA taxes paid now results in higher SS payouts when you retire, so it's not always a bad idea. It depends on where you are on the lifetime income scale (bend points) and whether you are above the FICA max annually, but there are scenarios where it makes sense to pay more FICA now. YMMV.
blackfish wrote: Fri Apr 16, 2021 7:45 am 3. Continue to contribute pre-tax to max out my HSA to Optum to avoid FICA taxes and do a one time rollover of whatever the balance is annually through the same method above.

My Questions:

2. Option 3 is likely the most financially beneficial - but is it worth the effort? Looking for opinions or anyone who has done this in the past or is currently doing it that can weigh in.
Both your employer-selected custodian (Optum) and my employer-selected custodian (HealthEquity) list a trustee-to-trustee transfer fee, which is why sites like the Finance Buff recommend doing the once-yearly indirect rollover. However, in practice, HealthEquity does not charge me a fee, so I do transfers quarterly to Lively. I do not invest at all in the HealthEquity HSA, so the contributions are sitting in cash during that time, but it's only for 1-3 months and it's not that much money at a time so the cash drag in this case is acceptable to me. I would check your specific fee schedule to see if Optum actually charges you the transfer fee or not (like how your employer is probably covering the monthly maintenance fee).
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